Emergency Funds

Having money in a savings account is the best way to be prepared for the financial uncertainties that crop up in life. Your car breaks down. Your refrigerator quits. You need dental work. You lose your job. These things happen to everybody from time to time. The big question is: "Can you pay for them?"

There's one way to be able to answer yes. As soon as you start earning, you should start building an emergency savings fund, sometimes called a rainy day fund. Keep at it, paycheck after paycheck, until you've put away three to six months' worth of your living expenses (including loan repayments and other regular obligations).

Then let the savings accumulate, taking money out only for real emergencies.

To build your fund, pay yourself first, one of two ways:

  • When you pay your monthly bills, write a check to yourself, and deposit it in your savings account

  • Ask your employer to directly deposit a specific amount of your paycheck into your savings account


While you're enrolled in college, you may get a loan refund if the total amount of financial aid credited to your account for a school term is more than the cost of attending.

Unless you give different instructions for what to do with the money, your school will send it to you, either by check or electronic transfer to your personal account. You'll probably find the money handy, but don't be fooled. It's still a loan and you're going to have to pay the amount back plus interest, along with the rest of your loan.

You have some smart options for how to handle the refund:

  • Make a lump-sum repayment to your lender to reduce what you owe

  • Put it in your savings account for the next term's expenses

  • Ask your college to leave it in your account for next term's bills

But don't count on getting a refund, or consider it a gift. And don't put off building an emergency fund because you plan on using the refund to cover any unexpected expenses.
Paying yourself first means setting aside savings before you use your income to pay for other things. It doesn't mean splurging on unnecessary purchases.